4 models have responded to the "Mini LBO Underwrite" challenge. Compare their approaches side-by-side on RIVAL. This response is part of RIVAL's open dataset of 5,600+ AI model responses.
Mini LBO Underwrite
Gpt 5 2 Chat's response to the 'Mini LBO Underwrite' challenge.
?Prompt
You are underwriting a 5-year LBO for a private equity investment committee. Company (fictional): HarborTech Services (HTS) – mission-critical HVAC maintenance + monitoring for data centers (mostly recurring service contracts). Use only the information below. Do NOT browse the web. This is a fictional exercise. ENTRY (close at end of FY2025) - FY2025 revenue: $900m - FY2025 EBITDA: $120m (13.3% margin) - Purchase price: 12.0x EBITDA - Transaction fees: 2.0% of enterprise value (paid at close, funded by equity) SOURCES & USES (simplified) - Total leverage at close: 5.5x EBITDA - Term Loan: 4.0x EBITDA, 9.0% cash interest, 1.0% annual amortization - Mezzanine: 1.5x EBITDA, 12.0% cash interest + 2.0% PIK (PIK accrues to principal) - Equity funds the remainder - Assume starting cash is $0. - Assume all free cash flow after required payments is used for optional Term Loan paydown (no dividends). OPERATING ASSUMPTIONS (FY2026–FY2030) Base case: - Revenue growth: 8%, 7%, 6%, 5%, 5% - EBITDA margin: 14.0%, 15.0%, 16.0%, 16.5%, 17.0% - Capex: 3.0% of revenue - Change in NWC: 0.5% of incremental revenue (cash outflow) - Cash tax rate: 25% applied to max(0, EBITDA - cash interest) (simplified) EXIT (end of FY2030) - Exit multiple: 10.5x FY2030 EBITDA - Exit fees: 1.0% of enterprise value - Mezzanine (including PIK) is repaid at exit. TASK 1) Build a simplified year-by-year table (FY2026–FY2030) with: revenue, EBITDA, cash interest (by tranche), cash taxes, capex, ΔNWC, free cash flow after debt service, and ending debt balances (Term Loan + Mezz). 2) Compute equity IRR and MOIC. 3) Provide a sensitivity table of equity IRR vs exit multiple (9.5x / 10.5x / 11.5x) and exit-year EBITDA margin (16% / 17% / 18%). 4) List 5 underwriting risks and 5 concrete downside protection levers. Keep it concise, but show the math clearly.
Response
Below is a concise but fully worked underwriting using only your inputs. Minor rounding throughout.
1) Operating & Cash Flow Build (Base Case)
Entry (end FY2025)
- EBITDA: $120m
- EV @ 12.0x: $1,440m
- Debt: $660m (TL $480m / Mezz $180m)
- Fees (2% EV): $28.8m
- Equity invested: $808.8m
Year-by-Year Summary ($mm)
| FY | Revenue | EBITDA | Cash Int (TL) | Cash Int (Mezz) | Cash Taxes | Capex | ΔNWC | FCF after req. pay | Term Loan End | Mezz End* |
|---|---|---|---|---|---|---|---|---|---|---|
| 2026 | 972.0 | 136.1 | 43.2 | 21.6 | 17.8 | 29.2 | 0.4 | 19.1 | 456.1 | 183.6 |
| 2027 | 1,040.0 | 156.0 | 41.0 | 22.0 | 23.3 | 31.2 | 0.3 | 33.4 | 417.9 | 187.3 |
| 2028 | 1,102.4 | 176.4 | 37.6 | 22.5 | 29.1 | 33.1 | 0.3 | 49.0 | 364.1 | 191.0 |
| 2029 | 1,157.5 | 191.0 | 32.8 | 22.9 | 33.8 | 34.7 | 0.3 | 61.7 | 297.6 | 194.8 |
| 2030 | 1,215.4 | 206.6 | 26.8 | 23.4 | 39.1 | 36.5 | 0.3 | 75.7 | 217.1 | 198.7 |
*Mezz includes 2% annual PIK accrual.
All excess FCF is used for optional Term Loan paydown.
Mandatory amortization assumed at 1% of original TL ($4.8m/year).
2) Exit & Equity Returns
Exit (end FY2030)
- EBITDA: $206.6m
- Exit multiple: 10.5x
- Exit EV: $2,169m
- Exit fees (1%): (21.7)
- Net EV: $2,147.3m
Debt repaid at exit
- Term Loan: $217.1m
- Mezz (incl. PIK): $198.7m
- Total: $415.8m
Equity proceeds:
$2,147.3 − 415.8 = $1,731.5m
Returns
- MOIC: 2.14x
- 5‑yr IRR: ~16.5%
3) Equity IRR Sensitivity (%)
Rows = Exit EBITDA Margin (FY2030)
Columns = Exit Multiple
| Exit Margin | 9.5x | 10.5x | 11.5x |
|---|---|---|---|
| 16% | ~12.8% | ~14.6% | ~16.3% |
| 17% (Base) | ~14.6% | 16.5% | ~18.3% |
| 18% | ~16.3% | ~18.4% | ~20.5% |
(Assumes same leverage path; EBITDA flexed via margin only.)
4) Key Underwriting Risks
- Customer concentration among hyperscale data center operators.
- Margin execution risk from labor inflation and technician availability.
- Technology displacement (AI-based predictive monitoring in-house by customers).
- Leverage sensitivity with meaningful mezz + PIK compounding.
- Exit multiple compression in infrastructure / services valuations.
5) Downside Protection Levers
- Tighter covenants & excess cash sweep to accelerate de-levering.
- Pricing escalators and CPI-linked clauses in service contracts.
- OpEx flexibility via subcontracting and variable labor mix.
- Capex deferral in non-critical monitoring upgrades.
- Early mezz refinance once leverage <4.0x to reduce cash + PIK drag.
Bottom line:
A defensible, cash-generative LBO with mid‑teens base‑case IRR, strong de‑levering, and meaningful upside from margin expansion and multiple stability.
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About GPT-5.2 Chat
Capabilities
Categories
Specifications
- Provider
- Openai
- Released
- 2025-12-10
- Size
- LARGE
- Context
- 128,000 tokens
